Greg Guenthner

The Dow Jones Industrial Average is a dog.

Investors are shredding the blue chips during this summer pullback. If the carnage continues, you’ll need to reassess your holdings as the market limps toward the fourth quarter.

Sure, many stocks have dropped since the market peak a few weeks ago. But the Dow has managed to outpace them all. While the S&P 500 is down about 3.75% since the beginning of August, the Dow has dropped nearly 4.7% (that’s more than 700 points, in case you’re keeping track).

After this month’s hiccup, the Dow is now trailing the S&P on the year…

I’m sure you’ve noticed that I don’t usually refer back to the Dow when discussing market performance. The Dow makes for good TV fodder. And most people who aren’t totally plugged into the world of finance tend to use it as their sole market barometer.

But the Dow isn’t the ideal broad market gauge. It’s composed of just 30 massive companies. If one of them has a bad day, it can inflict some serious damage on the average. That’s because the index is price weighted. So the higher share prices drag down the index to a greater degree.

Have a look for yourself:

Performance of DJIA Stocks Since 8/2 Peak

Source: Bespoke Investment Group

The first thing you’ll probably notice is that every single Dow component has traded lower since August 2. You can also see that IBM has inflicted the most damage, despite not owning the biggest loser title…

“IBM has accounted for more than 11% of the total decline (80 points).  The second and third largest drags on the index are also triple-digit priced stocks as Chevron has been a 54-point drag and United Technologies has accounted for 44 points of downside,” Bespoke Investment Group explains.

Many of these components are trading in no-man’s land right now. They’ll need to find new support before you take a shot at buying the dip. If you own a Dow stock that’s taken a beating this month, it might be time to lighten up. If you’re feeling opportunistic, a few of the stronger components could be setting up for solid bounces.

Regards,

Greg Guenthner
for The Rude Awakening

You May Also Like:


Plotting the Pain

Greg Guenthner

The broad market has suffered since mid-May. If blood is your thing, you can find some added carnage in emerging markets. They’re down 7% over the same period.

Greg Guenthner

Greg Guenthner, CMT, is the managing editor of The Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

  • Tom Sawyer

    That picture is not one of a dog , it is a BOXER. Anything else would have been appropriate.

Recent Articles

NATO Meeting Gives You a Strong “Buy” Signal

Byron King

In early September, 2014 an important meeting was held at the posh Celtic Manor, in Newport, Wales. Heads of state were present. But it was the appearance of a Lockheed F-35B fighter jet that held the real story of what was going on... Today, Byron King pulls back the curtain on this meeting, and how you can use it to your advantage in the market. Read on...


What to Do When the Largest IPO in History Hits the Market

Josh Grasmick

The largest IPO in history is about to hit the market. And there's all kinds of speculation as to how it's going to pan out. Today, Josh Grasmick gives a definitive answer... and offers some advice on how to play this new stock for huge gains no matter what happens on day one of the IPO. Read on...


Laissez Faire
One Great Tip for Investing in 3-D Imaging Technology

Chris Campbell

By now you're likely familiar with 3-D printing. It's one of the most important tech developments of the last decade, and it's just getting started. But as Chris Campbell explains, there's another form of 3-D technology that could soon overshadow it. Read on...


A Unique Way to Play the Health Craze

Greg Guenthner

With the rise of the organic food market, people are becoming more and more health conscious, and thus, more aware of what goes into cultivating their food. But there's one aspect of this market that's long overdue for a massive overhaul, and that could present a very lucrative investment opportunity. Greg Guenthner explains...


How to Invest in a Strong Dollar World

Chris Mayer

Our friend Jim Rickards and founder Addison Wiggin believe the dollar will soon meet its demise. Chris Mayer, on the other hand, thinks the dollar will only get stronger this year and next. We'll let you decide for yourself. In this featured essay Chris lays out his train of thought and a guide for investing in a strong dollar world. Read on...